How to Recruit and Retain the Top Talent in your Marketplace

Enterprise Management Incentives are a HMRC approved way of receiving an option to a share in a business at a future date – for example, the date is the sooner of an event such as a sale or perhaps a 10-year anniversary.

This can be an excellent way of recruiting and retaining key staff and incentivising them towards common goals and profit. Anyone who is ambitious and good at their job will always be searching for a role with better career prospects and higher financial rewards. And if they leave, the cost to replace them can damage your business financially.

But with an EMI, you can often avoid losing key staff.

What is an EMI?

EMI’s are share schemes offering attractive tax breaks for both the employer and the employee if your company has assets of £30 million or less. And if the shares in your business are purchased by the employee for at least their market value during the period of the share option, there will be NO income tax or national insurance to pay

Advantages

EMI’s enable smaller businesses to offer employees an equity stake in the business rather than paying high salaries and bonuses.

The employee feels part of the company and can benefit from receiving substantial gains should the company grow. This incentivises them to help build a successful business.

Your company can grant shares up to the value of £250,000 over a 3-year period – with no immediate income tax or national insurance payments due.

And a capital gains tax (currently 10%) will only arise when the shares are sold. The income tax and NI charge for providing a similar cash reward would be almost 50%.

Provided the total value of shares issued under an EMI is less than £3 million, there is no limit to the number of shares which can be issued. Or the number of employees who can receive them. So, it’s an excellent route to retain key staff.

Corporate tax deduction

It gets better. Your company will receive a Corporation Tax deduction on an EMI plan, provided the following conditions are met:

– your business has a turnover of less than £30 million.

– the employee works a minimum of 25 hours a week, or

– if less, at least 75% of the employee’s working time

– the employee cannot own directly or indirectly more than 30% of the ordinary share capital of the company.

– the shares must be exercisable within 10 years.

Excluded activities

A little bad news. If your company works in the following sectors, you won’t be able to offer EMI’s:

– banking

– farming

– property development

– provision of legal services

– shipbuilding

And finally, when option shares are sold, the employee will be liable for capital gains tax (CGT), which is currently at the entrepreneur’s relief rate of 10% rather than income tax. To make it more attractive though, the employee can also use their annual CGT exemption.

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